The Centre should help RBI tame retail inflation

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Source- Live Mint

Synopsis – Food and fuel should be included in the GST rate to provide tax relief.

Introduction-
  • Retail inflation slipped to 6.26 percent in June. It breached the upper tolerance limit of the inflation target range set by the RBI’s monetary policy committee for the second consecutive month in a row.
    • According to the Consumer Price Index (CPI), the Inflation was 6.3 percent in May 2021.
  • Retail inflation, measured by the consumer price inflation index, is the main price gauge that the RBI tracks. It remained high due to rising fuel prices and costlier items in the food basket.
Inflation threats
  • Imported Crude oil impact– Crude oil prices on the global market are likely to drive up inflation in nations that import the commodity.
    • This might be attributed to greater import costs and a depreciation of the native currency, resulting in higher import prices.
    • Because India imports 82.8 percent of its crude oil, increasing oil prices have a negative influence on inflation.
  • Consumer food price inflation– In May, consumer food price inflation hit a six-month-high.
  • Falling rupee – A falling rupee increases import costs and raises retail prices, while an RBI prop for the currency’s external value in inflationary times would hamper exports.
  • The increase in inflation is also due to weak demand, low production and supply disruption
What needs to be done to control the inflation-?
  • RBI could tighten credit by raising its policy rate or reversing other liquidity measures. Stable prices of food and fuel would help to secure economic stability.
  • Indian currency must retain its real value – As falling rupee would enlarge import bill and push up retail prices. The Center can take some steps to ease the pressure on our central bank to meet its promise of a trusty rupee.
  • Put Food and Fuel into GST net-
    • As the majority of what consumers pay for petrol and diesel is made up of taxes.
    • The fuel cesses reductions would provide monetary policy more room to support a recovery in growth.
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